I am starting to be convinced that DOGE should investigate public education, and many of the private schools to boot. Results are abysmal. We rank at the bottom of international educational measures for developed countries.
Falsehoods originating long before our birth are allowed to persist uncorrected. If education is enlightenment, then what we do is far from it. Misconceptions are understandable regarding policies and programs whose history is only weakly discerned. At this point, the falsehoods take on a life of their own and stretches into folklore.
No better example can be found than the folklore surrounding Social Security. It is assumed to be like a regular pension with contributions, investments, later payouts, and a cash-out option. I follow on social media “The Other 98%” page and found this rip-roaring delusion:
“Repeat after me: Social Security is our money, that we earned by working and paying into the fund – EACH paycheck and not an ‘entitlement’!”
But repeat after me: No, it is not treated as your money, and it is an “entitlement”. Fact.
Try this experiment: go into your local Social Security office and request the return of your contributions. It is an option with any other pension, like a teacher’s pension. After initial puzzlement, the clerk will inform you that it is impossible. Why? Your contributions have already passed into the checks of current retirees. The only way for you to receive any money from the program is to qualify and then wait for your monthly allotment to arrive in your bank account like any recipient.
The requirement of qualifying is what makes it an “entitlement”. You collect benefits when you meet the law’s qualifications. In other words, you are “entitled”, entitled by law.
Now, what about the claim that it is your money? Yes, it once was, till your employer, as required by law, took it away to be combined with his in the form of FICA, in like manner as income tax withholding. It is recorded by the Social Security Administration and then shipped off to a retiree. See, a Social Security pension operates on a pay-as-you-go basis. Yes, pay-as-you-go. Money goes in, money goes out. Like any tax, money that was once yours is now owned by the government (the Social Security Administration) and delivered into the possession of a qualifying recipient.
Pay-as-you-go explains the befuddlement of the government employee and the reason that it was once your money but not now. A retiree during your work life can now pay rent. The same opportunity will present itself to you when you qualify for the entitlement. Current workers pay for current retirees.
That was the nature of the program from the beginning. The Social Security Act passed in 1935, the collection of taxes began in 1937, and the receipt of benefits started in 1940. The first generation of recipients paid at most 3 years of taxes before qualifying, which is too little time for them to be just “getting their money back”. The pattern was set from this point on. Nobody is getting their money back. They are getting somebody else’s money.
Harsh but true. The whole scheme relies on a generational imbalance of many more contributing workers than recipients. The number of contributing workers per recipient may have been as high as 100 in 1940. By 1945, it was down to around 40 and has fallen ever since (see attached graph). Today, it hovers between 2 and 3. The burden to support one retiree falls on 3 people instead of 40. In other words, taxes must skyrocket or the national debt balloons. One has happened (tax increases) and the other is happening (inflation of the national debt).
Just looking at one year, 2020, Social Security ran up a deficit of $65 billion. By 2030, it is estimated to be $300 billion in arrears (see attached graph). The number is much bigger than a matter of waste, fraud, abuse, and illegals. We have a birth dearth. A fertility rate of 1.7 will not cut it. And people live longer to receive benefits. A generational pay-as-you-go gambit is only sacrificing the opportunities of your grandchildren as the growing national debt absorbs the capital for their future.
Social Security, Medicare, Medicaid, and nutritional assistance account for 65% of the federal budget. Defense garners 13%. Since 65% of the federal budget are entitlements – qualify and you get – there is no set amount for them. Payments on the national debt add another 16%. Their spending is on autopilot.
Defense is discretionary and requires a limit. Work this out in your head. So, what is essential to government’s reason for existence is constrained by a limit, and what is not is on autopilot with no limit.
Since people will holler bloody murder if there is talk of reforming the entitlements, that will leave only two options to avoid a 1970’s Argentina-style repudiation of debt. One is to not avoid it and let the debt balloon by wallowing in folklore. The other is to gut defense and ask government employees to work for free.
The thinking of “The Other 98%” is a national suicide pact.
RogerG
Sources:
1. A great primer on the federal budget can be found in “CATO Handbook for Policymakers: Social Security”, Michael Tanner, CATO, 2022, at https://www.cato.org/cato-handbook-policymakers/cato-handbook-policymakers-9th-edition-2022/social-security